Banking Financial Awareness · Economics

Financial Markets and Instruments

1,955 Questions

Financial markets and instruments cover mutual funds, risk management, portfolio optimization, and investment strategies. These topics are critical for banking and financial awareness sections in competitive exams. Practice these questions to understand operational risk, asset valuation, and market regulations.

Portfolio optimizationOperational risk managementMutual funds valuationInvestment income typesHedging strategies

Financial Markets and Instruments Questions

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

A firm can only issue debt or equity as a source of finance. It cannot issue both at the same time.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

False.

Firm can issue equity and debt at the same time.
Debt financing is capital acquired through the borrowing of funds to be repaid at a later date. Common types of debt are loans. The benefit of debt financing is that it allows a business to leverage a small amount of money into a much larger sum, enabling more rapid growth than might otherwise be possible.
Equity financing refers to funds generated by the sale of stock.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Which one of the following is not among the assumptions of the Modigliani-Miller model?

  1. Perfect capital market

  2. Equivalent risk classes

  3. Unity for dividend payout ratio

  4. Absence of taxes
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to Modigliani and Miller (M-M), dividend policy of a firm is irrelevant as it does not affect the wealth of the shareholders. They argue that the value of the firm depends on the firm’s earnings which result from its investment policy. 
Modigliani and Miller model is based on the following assumptions : 
1. The firm operates in perfect capital market.

2.The firm has a fixed investment policy.
3. Absence of taxes.
4. Risk of uncertainty does not exist. That is, investors are able to forecast future prices and dividends with certainty and one discount rate is appropriate for all securities and all time periods.

Multiple choice economics theories of distribution unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

_______________ means the preference of the people to hold wealth in the form of liquid cash rather than in other non-liquid assets like bonds, securities, bills of exchange, land, building, gold etc.

  1. Demand preference

  2. Liquidity preference

  3. Supply preference

  4. Transaction preference
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Liquidity Preference theory refers to the preference of the people to hold wealth in the form of liquid cash rather than in other non-liquid assets like bonds, securities, land, building, gold etc. According to the liquidity preference theory of interest, interest rates on short-term securities are lower because investors are not sacrificing liquidity for greater time frames as in medium or longer-term securities.

Multiple choice economics income determination unemployment and employment generation the short run fixed price analysis of the product market liquidity preference and profit

If planned investment falls short of planned saving, then stock of goods tend to pile up.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

True. 

When Planned investment is less than the planned savings , then the planned inventory will accumulate as their will be less consumption due to high savings in the economy.

Multiple choice economics sustainable development with equity liberalisation objectives of economic planning in india need for sustainable development introduction to social movements and its types social movements

'Equity schemes managed strong NAV gains, which boost their assets' was a news in some financial newspapers. What is the full form of the term NAV as used in above head lines?

  1. Nil Accounting Variation

  2. Net Accounting Venture

  3. Net Asset Value

  4. New Asset Venture
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Net asset value (NAV) represents a fund's per share market value. It is the price at which investors buy ("bid price") fund shares from a fund company and sell them ("redemption price") to a fund company

Multiple choice business economics and quantitative methods measures of dispersion and skewness shortcut method to find variance and standard deviation variance and standard deviation measures of dispersion

In expected rate of return for constant growth, dividends are expected to grow but with the _____________.

  1. constant rate

  2. variable rate

  3. yielding rate

  4. returning yield
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In the constant growth dividend discount model, dividends are assumed to grow at a stable, constant rate indefinitely.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

Which one out of the following is not an inventory valuation method?

  1. FIFO

  2. LIFO

  3. Weighted Average

  4. EOQ
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

FIFO, LIFO, and Weighted Average are standard methods for valuing inventory. EOQ (Economic Order Quantity) is a formula used to determine the optimal order quantity to minimize total inventory costs, not a valuation method.

Multiple choice elements of book keeping and accountancy methods of valuation of closing stock adjustment for closing stock only closing stock meaning, kinds and important terms relating to stock

FIFO is advisable in case of _____________.

  1. Rising prices

  2. Falling prices

  3. Constant prices

  4. Fluctuating prices
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

In periods of falling prices, FIFO results in a lower ending inventory value compared to other methods, which is generally considered a conservative approach.

Multiple choice elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

Basic objective of diversification is:

  1. Increasing Return

  2. Maximising Return

  3. Decreasing Risk

  4. Maximizing Risk
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Diversification aims to maximize returns by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.

Multiple choice elements of book keeping and accountancy trial balance develop the skill of preparing trial balance by balance method methods of preparing trial balance preparation of trial balance

From the point of view of the lessee, a lease is a:

  1. Working capital decision

  2. Financing decision

  3. Buy or make decision

  4. Investment decision
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Lease is a financing decision because investment is something from where you are will get back some returns in future. In leasing there is no return rather lessee is paying lease rentals per month. Moreover, lessee gets immediate access to the assets. It has tax benefits.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Risk free rate is subtracted from expected market return is considered as _______.

  1. country risk

  2. diversifiable risk

  3. equity risk premium

  4. market risk premium
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The equity risk premium is the excess return that investing in the stock market provides over a risk-free rate.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

Third step in calculating value of stock with non-constant growth rate is to find ___________.

  1. PV of expected dividends

  2. FV of expected dividends

  3. PV of intrinsic rate

  4. FV of intrinsic rate
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

In the multi-stage dividend discount model, the third step is typically calculating the present value of the expected dividends during the non-constant growth phase.